Resource Management Comprehensive Review - Part 1: Financial Reporting and the Non-Profit School Food Service account Pete McLoughlin, MBA, Financial Management Section Head, Nutrition Programs
Objectives Review financial reporting requirements, their importance in effectively managing the food service operation, and what is reviewed during the Non-Profit School Food Service Account portion of the Resource Management Comprehensive Review Learn from hearing some of the better and notso-good practices from observations in the field over the last two years of reviews Participate in helpful peer discussion 2
Agenda Renewed Focus on Financial Management Overview of Resource Management Process within the Administrative Review Importance of Resource/Financial Management What should be done 4 Resource Management Review Areas: Maintenance of the Non-Profit School Food Service Account Paid Lunch Equity Revenue from Non-program Foods Indirect Costs 3
Renewed Focus on Financial Management Financial Reporting Requirements New process for SY2014-2015: Upload your YTD P&L, quarterly Upload your balance sheet annually (end of year) 4
Resource Management Process within the Administrative Review 5
Resource Management Process within the Administrative Review Non Comprehensive Review RM review will be conducted at a higher level by program reviewer assigned to Admin review Comprehensive Review RMCR will be conducted by MA ESE financial management staff Letter will go out detailing what is needed SFA uploads financial documents on Security Portal Goal is to accomplish most of review offsite Discuss resource management review areas onsite 6
Importance of Resource Management Federal regulations require State Agencies to ensure School Food Authorities (SFAs) safeguard limited assets and ensure they are used only for authorized school food service purposes Ensures effective and consistent management of program resources Critical to the fiscal and nutritional integrity of school nutrition programs. 7
What is Financial Management as it Relates to Nutrition Programs? The process of defining the program objectives and financial goals for the school nutrition programs, and Implementing activities to attain those goals through the effective use of resources Critical component of a Food Service Director s Responsibilities 8
What are the Key Activities for More Effective Financial Management? School nutrition programs should plan through the budget process, apply efficient cost control measures, increase productivity, and identify ways to increase resources. 9
What are the Financial Management Questions You Should be Asking? Main sources of revenue? Percentage of total revenue attributed to each source? Expenditure categories? Costs to produce a meal? Percentage of revenue spent for labor or food? 10
More Financial Management Questions Labor productivity index (Meals Per Labor Hour)? Net gain or loss over the past 3 years? Do employees understand the importance of cost controls to the success of the program? What does a comparison of Average Daily Participation for the past 3 years tell me? 11
What You Need to Track Revenue Defined as income received in exchange for goods or services provided by the school food service department (National Food Service Management Institute NFSMI). Examples: sales to students, reimbursements, adult sales, interest, catering, vending sales etc. 12
Classification of Revenue Local Sources State Sources Federal Sources Miscellaneous Sources Fund Transfer-In 13
Revenue Accountability USDA mandates accountability for management of revenue by monitoring all revenue received, how revenue is dispersed, and that revenue is sufficient to ensure program sustainability. 14
Revenue Analysis Calculate average revenue per meal or meal equivalent. Establish consistent guidelines for pricing nonprogram food items to ensure revenue is equal to or greater than costs. Compare revenue generated per meal with costs per meal. 15
Why it s important to compare revenue earned with meal cost helps determine if and where revenue should be increased, allows you to analyze revenue by source, and identifies areas in which revenue should be monitored for revenue loss. 16
Using Meal Equivalents in Program Analysis to Measure Performance By converting food sales to meal equivalents, the school nutrition director can determine meal cost, labor productivity ratios, and the average revenue earned per meal/meal equivalent. 17
Meal Equivalent Conversion Formulas 1 lunch = 1 meal equivalent 3 breakfasts = 2 meal equivalents (2/3 =.67) 3 snacks = 1 meal equivalent (1/3 =.33) 1 supper = 1 meal equivalent Nonprogram food sales = revenue from nonprogram sales current free lunch reimbursement + current USDA Foods value per lunch 18
What You Need to Track Expenditures Cont d Defined as costs that can be indentified specifically within the operation of the school foodservice program (NFSMI) Examples: Food, labor, equipment, sanitation, outreach, promotional, fees, licenses, indirect costs etc. 19
Classification of Expenditures Labor Employee Benefits Professional and Technical Services Property Services Purchased Foods and USDA Foods Supplies Capital Assets Miscellaneous Indirect Costs Food Service Management 20
Expenditure Analysis Analyzing financial reports can provide information about patterns or trends, significant changes in specific cost categories, deviations from financial goals (budget), possible abuse or theft, and transaction errors. 21
Types of Expenditure Analysis Total costs to produce a meal Meal costs per expenditure category Percentages of operational costs to total revenue (operating ratios)* Costs to produce a meal compared with the average revenue generated per meal 22
Expenditure Percentages 23
Comparing Revenue to Expenditures Total net gain/loss to the school nutrition program expressed in dollars, Percent of gain/loss expressed in percentage of revenue, and Net gain/loss per meal or meal equivalent. 24
Food Cost Expenditure Percentage to Total Revenue Formula: Example: Category Costs Total Revenue $16,500 (food costs) $30,000 (revenue) =.55 x 100 or 55% $.55 cents from each $1.00 generated was used to purchase food. 25
Controlling Food and Labor Costs in School Nutrition Programs Why so Important?... Apply cost control measures to operate a financially sound program with nutritional integrity. 26
Meals Per Labor Hour Number Meals/Meal Equivalents Number of Paid Productive Labor Hours Example: 338 Meals/Meal Equivalents 24 Paid Productive Labor Hours = 14.08 or 14 Meals Per Labor Hour 27
Why Calculate the Cost of Food? To determine if costs are within guidelines, To ascertain if there are sufficient funds to pay expenditures, To establish the cost for each meal equivalent served, and To prevent waste and food theft through monitoring food usage. 28
Calculating Cost of Food Used Beginning Inventory + Total Purchases = Total Food Available - Ending Inventory = Cost of Food Used *Purchased Food and USDA Foods 29
Four Resource Management Review Areas Maintenance of the Nonprofit School Food Service Account Paid Lunch Equity Revenue from Non-program Foods Indirect Costs 30
What We Review/Do Revenues, expenditures, net profit or loss General ledger detail underlying the above Sampling of invoices, payroll detail, etc. Daily potential income sheets supporting revenue, bank deposit records Three months average expenditures Discuss Metrics-those being used/could be used Allowable costs 31
Revenues vs. Expenditures 32
Key Financial Reports Statement of Activities (P&L) Statement of Net Position (Balance Sheet) General Ledger 33
Profit and Loss Statement (Statement of Activities) Revenue by source Expenditures by category Net/gain loss for the statement period Comparison of current month with previous month s information and year-to-date information 34
Sample Profit and Loss Statement Revenue (Source) July August September Year-to-Date Local Sources: Student Meal Sales $ 24,978 $ 23,025 $ 24,101 $ 72,104 Adult Meal Sales $ 2,376 $ 2,175 $ 2,265 $ 6,816 A La Carte $ 11,326 $ 10,785 $ 10,995 $ 33,106 Catering $ 1,575 $ 1,560 $ 1,640 $ 4,775 Interest $ 260 $ 255 $ 260 $ 775 Federal Sources $ 186,639 $ 182,220 $ 184,150 $ 553,009 State Sources $ 18,831 $ 18,130 $ 18,275 $ 55,236 Miscellaneous $ - $ 8,010 $ - $ 8,010 Fund Transfer-In $ - $ - $ - $ - Total Revenue $ 245,985 $ 246,160 $ 241,686 $ 733,831 Expenditures July August September Year-to-Date Salaries & Wages $ 65,875 $ 63,900 $ 64,950 $ 194,725 Employee Benefits $ 28,975 $ 25,364 $ 15,810 $ 70,149 Purchased Services $ 375 $ 326 $ 385 $ 1,086 Property Services $ 305 $ 280 $ 300 $ 885 Food Costs $ 96,190 $ 90,183 $ 95,180 $ 281,553 Supplies $ 24,750 $ 21,360 $ 22,065 $ 68,175 Miscellaneous $ 625 $ - $ - $ 625 Capital Assets $ - $ 55,000 $ - $ 55,000 Indirect Costs $ 5,835 $ 5,830 $ 5,835 $ 17,500 Fund Transfer-Out $ - $ - $ - $ - Total Expenditures $ 222,930 $ 262,243 $ 204,525 $ 689,698 Net Profit/(Loss) $ 23,055 $ (16,083) $ 37,161 $ 44,133 35
Sample Profit and Loss Statement 36
Sample Profit and Loss Statement Revenue (Source) July Aug September October November December January February March April May June Year-to-Date Local Sources: Student Meal Sales $ 6,806 $ 81,054 $ 87,655 $ 65,869 $ 70,888 $ 60,708 $ 46,377 $ 90,376 $ 64,247 $ 573,982 Adult Meal Sales $ 156 $ 2,648 $ 3,069 $ 2,515 $ 2,502 $ 1,972 $ 1,680 $ 3,415 $ 23,824 $ 41,782 A La Carte $ 2,210 $ 28,267 $ 30,195 $ 22,234 $ 23,991 $ 20,339 $ 15,938 $ 32,275 $ 2,380 $ 177,830 Catering $ - $ 65 $ 882 $ 3,950 $ 90 $ - $ 1,071 $ 6,058 Interest $ - $ - $ - Federal Sources $ 32,050 $ 3,144 $ 44,641 $ 47,857 $ 32,955 $ 36,540 $ 31,258 $ 23,276 $ 49,244 $ 300,964 State Sources $ 4,309 $ 226 $ 2,616 $ 2,814 $ 2,026 $ 2,173 $ 1,891 $ 1,470 $ 2,807 $ 20,334 Miscellaneous $ 4,000 $ 93 $ - $ - $ 680 $ 90 $571.23 $ 791 $ - $ 6,225 Fund Transfer-In $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Total Revenue $ 45,532 $ 119,340 $ 168,269 $ 141,354 $ 133,245 $ 126,362 $ 97,324 $ 151,384 $ 144,365 $ - $ - $ 1,127,174 Expenditures July September October November December January February March April May June Year-to-Date Salaries & Wages $ 17,365 $ 61,977 $ 74,534 $61,798.27 $ 70,429 $ 49,171 $ 40,098 $60,408.21 $ 69,658 $ 505,437 Employee Benefits $ - $ - Purchased Services $ - $ - Property Services $ - $ - Food Costs $ 61,912 $ 51,440 50211.27 $ 38,172 $ 49,421 $ 22,873 $ 54,167 $ 57,852 $ 386,049 Supplies $ 4,695 $ 5,379 3311.43 $ 3,574 $ 3,892 $ 910 $ 3,399 $ 4,619 $ 29,780 Miscellaneous $ 1,117 $ 9,104 $ 15,751 $ 6,690 $ 1,130 $ 16,736 $ 3,311 $ 6,716 $ 6,416 $ 66,971 Capital Assets $ - $ - Indirect Costs $ - $ - Fund Transfer-Out $ - $ - $ - $ - $ - $ - Total Expenditures $ 18,481 $ 137,688 $ 147,104 $ 122,011 $ 113,305 $ 119,220 $ 67,192 $ 124,691 $ 138,544 $ - $ - $ 988,237 Net Profit/(Loss) $ 27,050 $ (18,349) $ 21,164 $ 19,343 $ 19,940 $ 7,142 $ 30,132 $ 26,693 $ 5,821 $ - $ - $ 138,937 37
School Food Service Account - Financial Management Questions How does your program track revenues and expenditures? Who is involved? Do you maintain consistent methods in doing so? Do you know how much money you take in and spend out daily/monthly? 38
Not-so-good Practice -- Accounting for Prepaid SFA counting cash and checks received for student prepaid accounts as revenue on P&L Also counting meal sales against prepaid accounts as revenue so, in essence, double counting 39
Better Practice --Accounting for Prepaid SFA accounts for prepaid deposits as revenue only as it is drawn down as a meal sale at register SFA showing deposits received for prepaid student accounts as a liability (deferred revenue on Balance Sheet) Reduced prepaid liability as meals are consumed (as revenue) using prepaid accounts 40
Not-so-good Practice -- Recognizing Revenue SFA not considering as revenue meals to students that were not paid up front since they didn t have money (essentially charging the costs to their account - unpaid meal charges) 41
Not so good Practice- Recognizing Revenue SFA recognizing May and June reimbursement as revenue in the following school year However, SFA not recognizing May and June reimbursements of prior year as revenue in the current school year Short 2 months of reimbursement revenue mainly due to timing of claims 42
Better Practice- Recognizing Revenue SFA uses cash basis accounting for P&L and counts June reimbursement received in July as revenue for following year SFA counts last year s June reimbursement as revenue in current year - so it basically nets out 43
Not-so-good Practice -- Communication Food Service Director is not directly involved in managing the financials submits monthly claim for reimbursement and forwards bills Business Manager handles all finances and financial reports and does not communicate or review with FSD Food Service Director essentially managing food service in the dark 44
Better Practice -- Communication Business Manager and Food Service Director reconcile non-profit school food service account monthly with the general ledger Strong team involvement in the budgeting and planning process Good communication - on same page 45
Not-so-good Practice -- Financial Records Food Service Director left SFA Many of the detailed financial records were unable to be located Turnover is never an excuse for not maintaining appropriate records to support the food service operation Must keep records for the current year plus the three previous years at a minimum 46
Not-so-good Practice Cash Controls/Management Large SFA had multiple levels of hand-offs for daily cash receipts No reconciling/sign-off done at each level Result was numerous inconsistencies between receipts identified at POS and actual amounts deposited Scenario ripe for potential misappropriation of funds 47
Balance Sheet (Statement of Net Position) Assets Cash balance Receivables due Value of inventories Non-current assets Liabilities Outstanding payables Deferred revenue Sales tax owed (when appropriate) Fund Balance Assets = Liabilities + Fund Balance 48
Sample Balance Sheet Assets Ending June 30, 2014 Current Assets Cash and Cash Equivalents $ 205,230.00 Sales Tax Collection $ - Investments $ 10,225.00 Due from Federal Reimbursements $ 185,365.00 Due from State Reimbursements $ 7,065.00 Due from Other Funds $ 1,525.00 Other Receivables $ 260.00 Inventories Food $ 8,500.00 Supplies $ 3,055.00 Total Current Assets $ 421,225.00 Noncurrent Assets Furniture and Equipment $ 425,456.00 less Accumulated Depreciation $ (400,124.00) Total Noncurrent Assets $ 25,332.00 Total Assets $ 446,557.00 Liabilities Current Liabilities Accounts Payable $ 172,695.00 Accrued Salaries $ 70,500.00 Accrued Payroll Deductions $ 19,050.00 Due to Other Funds $ 975.00 Deferred Revenue $ 2,225.00 Sales Tax Owed $ - Total Current Liabilities $ 265,445.00 Fund Balance Fund Balance Noncurrent Assets $ 25,332.00 Inventory $ 11,555.00 Assigned $ 24,670.00 Unassigned $ 119,555.00 Total Fund Balance $ 181,112.00 Total Liabilities and Fund Balance $ 446,557.00 49
Not-so-good Practice (s) Balance Sheet SFA not maintaining a balance sheet SFA using G/L software balance sheet output SFA not including prepaid meal sales as a liability (Deferred Revenue) SFA is not including inventory as an asset SFA not including noncurrent assets in the balance sheet 50
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Not so good Practice Balance Sheet, etc. School district borrowed money from the school lunch account at end of school year and returned it at start of next school year 55
General Ledger A general ledger is a central repository for accounting data (deposits, payments, transfers, credits, etc.) broken out by categories, containing user-defined account codes The general ledger should include the date, description, and balance or total amount for each account/transaction Provides detail behind what is shown in the P&L 56
Sample GL- Revenue 57
Sample GL- Expenditures 58
Not-so-good Practice General Ledger Food Service Director and Business Manager not reconciling on a monthly basis. FSD does not even see the G/L on a regular basis. 59
Net Cash Resources Per 7CFR, Section 210.9 (b)(2), Net cash resources are limited to an amount that does not exceed 3 months average expenditures. At the end of an operating year (June), the ending cash balance cannot exceed this figure. 60
Net Cash Resources ESE will ensure that school food authorities comply with the requirements to account for all revenues and expenditures of their nonprofit school food service. ESE will ensure compliance with the requirements to limit net cash resources and shall provide for approval of net cash resources in excess of three months' average expenditures. 61
Allowable Costs All expenditures must conform to Federal Cost Principles 2 CFR Part 225 (to be replaced by OMB Super Circular 2 CFR 200) which says they must be Necessary Reasonable Allocable 62
Necessary A cost is necessary if the Child Nutrition Program s authorizing statute, program regulations or applicable FNS policy establish that the nonprofit school food service cannot be operated without incurring the cost e.g. a school food service cannot be operated without incurring the cost of appropriate food 63
Reasonable A cost is reasonable if, in its nature and amount, it does not exceed a price that is consistent with what a reasonable person would pay under the same or similar circumstances. 64
Criteria to Help Determine Necessary & Reasonable Costs How does the cost contribute to achieving an objective of the school food service? Is the cost recognized as ordinary and reasonable for the operation of the school food service? Would a prudent person find the cost to be reasonable under the circumstances? 65
Allocable A cost must be assigned to the programs, functions, activities or other cost objectives that benefited from the school district having incurred the cost (cost allocation plan needed) For example, school food service cannot be billed a higher share of utility costs just because the school district doesn t have the funds Such an action would assign the cost to a cost objective that did not benefit from it 66
Not-so-good -- Allowable Costs School district charged the school lunch account for cafeteria monitors whose job solely was to supervise students 67
Not-so-good -- Allowable Costs School department courier was fully charged to school lunch account as a direct cost Only a small portion of currier s job duties were school food service related 68
Not-so-good -- Allowable Costs School district carries unpaid meal charges as bad debt year-to-year in order to continue collection efforts. Bad debt is not an allowable cost. Another SFA was directed by the superintendent to delete unpaid meal charge records. This can t be done even if the LEA intends to pay off the bad debt. 69
It Would Be Easier If 70
71 School District Charge Policy and Procedure Components - SNA 2008
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73 School District Charge Policy and Procedure Components - SNA 2008
Questions???? 74
Thank You! Pete McLoughlin 781-338-6454 pmcloughlin@doe.mass.edu 75